Red Light Spells Danger!

xi-abbottDubai Land Department, through its 2011 Tanmia initiative, has announced the revival of a further 43 previously stalled projects, valued at US$ 2.72 billion. The DLD has been acting as a mediator to solve any issues, between investors and developers, when the progress of certain projects had reached an impasse.

With two hotels already under their banner, and two more coming on stream, Ajman-based R Hotels have announced the launch of their fifth Dubai property.  The US$ 136 million project will be a 259-room, 4-star hotel and be the first sharia-compliant hotel to be located on Palm Jumeirah.

China State Construction Engineering Corporation (ME) LLC is confident that it will complete construction of Skai Holdings’ US$ 1 billion Viceroy Dubai Palm Jumeirah on time in 2016. The project includes a 479-room 5-star hotel together with 222 residences and ten restaurants.

Space in the 418k sq mt Nakheel Mall is already 50% booked and this week it was announced that Vox Cinemas will have a 15-theatre facility in this Palm Jumeirah location. When completed in 2017, there will also be 300 retail outlets, a medical centre and parking for 4k, together with roof plaza eateries.

Following four years of legal wrangling, there has been an out of court agreement between IFA Hotels & Resorts and Istithmar World, a JV for a mixed-use development (including ten 11-storey towers housing 860 units and 430k sq ft of retail and office space) on Palm Jumeirah. The partners, Nakheel and Souq Residences FZCO, have agreed that all the unsold units in the Golden Mile project will be taken over by Nakheel whilst the Kuwaiti entity will be relieved of substantial liabilities. There are at least 30 retailers who have waited for this settlement so that they can now open outlets.

G & Co has announced its newest development – the US$ 763 million Millennium Square, located in Meydan City. The 3.5k sq ft semi-detached 4-bedroom villas will have a starting price of US$ 1.2 million and will be completed by 2017. It is reported that the asking price will be under US$ 1.2 million.

Both Arabtec and Drake & Scull have reported disappointing Q3 results. Dubai’s largest contractor saw a 31.8% fall in profit to US$ 18.7 million. Despite a 23.7% surge in revenue to US$ 654 million, there was an 89.0% jump in administrative expenses to US$ 66 million.

DSI’s profit fell 10.1% to US$ 5.8 million, despite a 24.6% surge in revenue to US$ 338 million. The Dubai-based company also announced it had received a US$ 120 million facility, by dint of a 5-year sukuk.

With the construction sector a major driver in Dubai’s impressive economic growth, the 35th annual Big 5 exhibition boasted more than 2.7k exhibitors from over 60 countries. The four-day building construction event, opened by HH Maktoum bin Mohammed bin Rashid Al Maktoum, closed on Thursday.

Two GREs (government related entities) are in the news this week. Dubai World is reportedly extending their loans of US$ 10.5 billion until 2022 and this will ameliorate a US$ 4.4 billion repayment due next year. Meanwhile the Dubai Aviation Corp’s flydubai has begun discussions with potential lenders, with the aim of issuing a US$ Islamic bond in the near future. The budget carrier has just reported a 40.0% jump in H1 profits to US$ 14 million, on the back of a 17.1% increase in revenue to US$ 515 million. The latest figures indicate that the five-year old airline has outstanding debts of US$ 1.05 billion, with capital commitments totalling US$ 11.4 billion.

A report from Oxford Economics has found that the aviation and tourism sectors contribute almost 27% (or US$ 26.7 billion) to Dubai’s GDP. This is expected to almost double over the next six years, resulting in a 37.5% contribution to the emirate’s GDP (US$ 53.1 billion) by 2020. More significantly, it will support over 754k Dubai-based jobs.

The emirate’s Al Rashudeen Trading Co has formed a JV with Moroccan partners to build a cigarette factory in Tangier. Planning permission has already been granted for work to start on the 60k sq mt site as well as for the new company to establish 20 storage units and 38k sales points in the country.

As the US$ 5.25 billion expansion of the 77 km Panama Canal draws to a close, DP World is in discussions with the aim of building up infrastructure there, as trade volumes will inevitably surge. The Central American republic is interested in exploring ways in which the two parties can cooperate, especially now that the widened canal can manage vessels with a capacity of 13.5k – well up from its current capacity 5k unit vessels.

The Department of Economic Development (DED) issued 4,688 new trade licences in Q3 – up 3% on the same period last year.

It seems that only 29 of the 51 banks operating in the country have subscribed to the reporting services of the newly opened Al Etihad Credit Bureau. Furthermore, eight banks have still to submit their customers’ credit details.

DFM’s latest IPO began subscriptions this week. 40% of Meraas Holding’s Dubai Parks and Resorts is up for sale with over 2.53 billion US$ 0.27 shares on offer. Funds raised – along with a US$ 1.5 billion project financing loan from Goldman Sachs – will be used to develop the mega theme park in Jebel Ali.

Having climbed 5.7% the previous seven days, the DFM reversed some of those gains by falling 2.0% from its Sunday opening of 4657 points to close Thursday on 4563. Bellwether stocks, Emaar Properties and Arabtec, fell in tandem trading at US$ 2.97 and US$ 1.08 respectively.

The Indian taxman lost an important battle this week when the court ruled that Royal Dutch Shell were not liable to pay tax on interest that the company would have earned when transferring shares in February 2013. The oil giant was accused of under-pricing a share transfer to its parent company by US$ 2.5 billion.

Despite the EU indicating that their tax agreement with Starbucks may contravene the law, by representing illegal state aid, the Dutch government thinks differently. The EU is concerned that the Dutch tax rules result in Starbucks lowering its taxable profit and hence its tax bill which are not in line with standard accounting practices. Other countries – Belgium, Cyprus, Gibraltar, Ireland, Luxembourg and Malta – are also involved in nefarious tax schemes with multinationals and facing probes from the EU regulators.

It is interesting to note that the President of the EC, Herman Van Rompuy, is a former Belgian prime minister whilst the newly appointed Jean-Claude Juncker was in charge in his native Luxembourg for 18 years until 2013, as well as Finance Minister from 1989 – 2009. Both men have played leading roles in making their countries tax havens and there must be questions on their independence in any future EU enquiry.

This week sees another three banks in trouble. The Belgian authorities have charged HSBC with assisting hundreds of wealthy nationals to avoid tax by moving money to offshore havens, including Panama and the Virgin Islands. The country has lost hundreds of millions of dollars in potential tax revenue and it is likely that the bank will face significant penalties. To make matters worse, French authorities are also investigating the same bank. The New York regulators have fined the Bank of Tokyo-Mitsubishi US$ 315 million for diluting a PwC report about transactions involving Iran. In Australia, ANZ have suspended seven traders whilst regulatory investigations into rate rigging take place.

Some of these bankers make Sepp Blatter look a saint!

China and Australia have signed a massive free trade agreement which will see increasing ties between the two countries. Chinese President Xi Jinping and PM Tony Abbott signed a MoU in Canberra. Currently, bilateral trade amounts to US$ 130 billion, with a further fourteen company agreements signed, totalling US$ 17.6 billion. One major benefit for Australia is that 95% of their exports will eventually be duty free into China.

On Monday, the Indian PM, Narendra Modi was in the Australian capital to push forward a free trade deal that would expand the current bilateral US$ 13 billion trade links between the two nations.

Following May’s coup, Thailand’s PM, Prayut Chan-O-Cha has seen his country’s Q3 growth fall to 0.6% as the promised revival has stalled.

As another indicator that all is not well, the third largest global economy, Japan has technically gone into recession with the economy contracting at an annualised rate of 1.6% in Q3, (as opposed to the expected 2.1% rise), following on the disastrous revised 7.2% fall in the previous quarter. This is a sure sign that Abenomics is not working as the inflow of billions of dollars of stimulus spending has failed to pull the economy out of its 20-year deflationary spiral. Prime Minister Shinzo Abe, who curtailed business confidence and consumer spending by gambling in April, as he lifted the Sales Tax rate, could soon be out of a job, after next month’s snap elections.

There is no doubt that any growth in the eurozone has ground to an ignominious halt, as the flagship German economy just avoids a recession, with a marginal Q3 growth rate of 0.1%. It is estimated that the bloc accounts for almost 20% of the global economy so the contagion will be felt not only locally but also worldwide. The ECB has still done very little to stimulate any sort of recovery and some firm action is now urgently required, as inflation rates are less than 25% of their 2.0% target. These falling prices, along with continuing high unemployment levels and sluggish growth, indicate that a third recession is just around the corner.

The few bright lights among the gloom are beginning to dim. US and UK still expect future growth rates of 3%+, whilst China, although slowing down, still sees levels of over 7%. Most other countries in the developed world, with the probable exceptions of India and Mexico, are flatlining. The recent G20 meeting in Brisbane failed to address the main economic issues, with no direct references to any new spending or trade initiatives.

No wonder that Prime Minister David Cameron is concerned that another recession, only six years after the last one, is a distinct possibility and that “red warning lights are once again flashing on the dashboard of the global economy”. There is no doubt that Red Light Spells Danger! 

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